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.pdf5 economics which emphasizes the roles of time and capital. All these theoretical approaches offered fresh insights into many (mainly macroeconomic) issues, and pointed to potential new research and policy directions. The ideas found in these economic theories could be applied to the building and construction industry, and this offers potential for development of theoretical foundations and new research directions for modern CE. Like Bröchner, this sees a flow of ideas from economics to CE rather than the reverse.
The last contribution to the debate discussed here is from Ive and Chang (2007) in a paper that also addressed the relationship between CE, economics and management. Their concern was the extent of progress towards recognition of CE as a sub-discipline of economics, measured by citations and authorship across the journals of the main discipline and the ‘putative sub-discipline’. Papers published in Construction Management and Economics between 2000 and 2006 were examined and classed as ‘economics of construction’, ‘construction management’ or ‘building economics’. In their view, without a theoretical breakthrough that is recognized by mainstream economics the best that construction economics can aspire to is the application of propositions from economics to the understanding of behaviour and explanation of institutions within construction: we can conclude that the economics of construction is still closer to ‘management of construction’ than will be most economics papers to any body of management literature and that ideas coming out of economics do not predominate in it relative to those coming out of management science. We also found a substantial body of papers that we categorized as ‘building economics’, because of their lack of reference to recognized economics. And: The economics of construction should ‘ideally’ face two ways: back towards the sources of its ideas (which should include the economics profession), to whom it can report on applications of theory, and forward towards the users of its normative work, to whom it can make recommendations. Meanwhile it also needs to look ‘sideways’ at itself, developing positive analysis whose value lies in adding to our understanding of why construction is organized as it is – something of critical importance for the development of CE, but which is not perhaps a main concern either to mainstream economists or to construction ‘users’ (Ive and Chang 2007: 14).
Also, Ive and Chang point out that in economics after 1980 topics emerged and gained recognition that ‘potentially bear closely upon the practical concerns of construction economics’. These include transactional relationships, contracts and reputation, networks, contracting-out, joint ventures 6 Gerard de valence and auctions. The chapter by Drew on auctions in this book is clearly in this path.
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Ive and Chang share a similar view to Bröchner and de Valence, with a largely one-way traffic in ideas from economics to CE, but by highlighting the requirements are rather more pessimistic about the prospects of CE finding an area where a breakthrough to sub-discipline status could be possible.
This point is important and is revisited below. Before then, however, questions about the relationship between the economics of construction and construction management (CM) the Ive and Chang paper raises should be given more consideration.
PRODUCTION THEORY
The economic theory of production developed after the mid-eighteenth century was one of the main topics of classical political economy and focused on the generation of net revenue, first from agriculture and later from industry and manufacturing. As marginal analysis replaced classical economics in the second half of the nineteenth century, ‘production theory was squeezed into the general framework of the optimal allocation of scarce resources: a framework originally developed to deal with the problem of pure exchange’ (Gilbert 1987: 990). In the neoclassical theory of production the starting point is a set of physical technological possibilities represented by a production function, based on the cost minimization and profit maximization objectives of the firm. The objective of neoclassical production modelling has been to construct general equilibrium models with demand and supply functions for a wide range of products and factors of production, based on the range of substitution possibilities among outputs and inputs at different points in time. The main issue has been the technical constraint that describes the range of production processes available to a firm and determines the cost base (Jorgenson 1987: 1003).
The economic theory of production described above is clearly based on the manufacturing industry and the production decisions that these firms have to make in regard to technology, processes and routines used to create output. This gives technology a key role in determining efficiency. However, there is more to the story, because management of the production process determines, to a large extent, the efficiency with which inputs are utilized. Denison (1993: 24) concluded his review of growth accounting and productivity research with comments on the role of management in productivity. He argued that some, probably significant, portion of the productivity slowdown in the 1970s was due to a decline in management effectiveness in American industry. Alternatively, there may have been a slackening in competitive pressures and less innovation in management methods, leading to a slower rate of productivity growth in the 1970s and 1980s compared to the 1960s. This sentiment has been echoed by Hamel and Breen (2007) who argue that there have been no new ideas in man-
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agement thinking for Theory and construction economics 7 many years. Either way, the key role of management in generating production efficiency is clear, and the importance of managing technology is central to that role (Mowery and Rosenberg 1998). Outside the lean construction movement there has been limited interest in a, or indeed any, theory of production as applied to the construction industry. What is found instead are various practice-based approaches, typically based on one of a range of management theories. Influential management theories, such as Porter’s five forces (1980) and international competitiveness (1990), Hammer and Champy’s process reengineering (1995), also Davenport (1993) on reengineering with information technology, and learning organizations (Argyris 1999) are all regularly found in papers in the building and construction literature addressing issues such as competitiveness, global markets and organizational capability.
The construction literature has many examples of management theories being used, usually during a period when they had gained a high profile in other industries. The short time in the spotlight for many management theories was the basis of Shapiro’s (1995) book, and described by Abrahamson (1996). Some candidates for management fads in construction might be total quality management (e.g. Love et al. 2000), supply chain management (e.g. Love et al. 2002), knowledge management (Anumba et al. 2005) and relationship management through partnering (e.g. Cheng and Li 2002) or strategic alliances (e.g. Pietroforte 1997). Project-based management (see Turner and Keegan 2000) may have already come and gone. In the evolution of lean construction and Koskela’s ideas since the 1992 publication of Application of the New Production Philosophy to Construction, his production theory has developed into what is now the Transformation-Flow-Value (TFV) theory (see Koskela’s chapter in this book for more on this, and an alternative approach to the argument here).
For the construction industry, the ideas and methods of lean construction offer an alternative to the management theories mentioned above, and any of the many other management theories around. Apart from the usefulness of conceptualizing production processes in a discipline traditionally preoccupied with practical matters, lean construction is the only theory of production to have been developed specifically for the construction industry. Therefore it provides insights into the range of processes that are involved, based on theory, that lead to propositions that can be tested by application to building and construction projects.
When discussing how the theory of production can be related to CE and CM it would seem a natural step to suggest that the economic theory of production aligns with CE; after all, these are both about economics. However, is this true? The economic theory of production is concerned with output and technology,
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typically defined (modelled) as production under a technical constraint. Much of CE is concerned with a range of activities that seem to be more involved with delivering products necessary to the sequences of steps involved in getting a building from conception to delivery: feasibility 8 Gerard de valence studies, cost planning, life costs, market analysis and so on. These are much more on the management side, akin to common tasks such as capital budgeting, activitybased costing and marketing, which also deliver tangible outputs (budgets, plans, etc.).
An interesting aspect of managerial theories is the extent of productive knowledge that is implicit in them. Most of the strategic, reengineering, marketing and so forth theories use extensive knowledge about a firm, its competitors, products and markets as their base. Likewise, many of the tasks undertaken within CE have a significant amount of prior productive knowledge, such as a method of measurement, a design evaluation or an industry analysis. A distinctive characteristic of productive knowledge is that it is typically distributed in work groups or across organizations (Nelson 2000). Some knowledge is shared (held by several individuals) and some is complementary and used in a coordinated manner. This seems to reflect the diverse range of skills and tasks that CE encompasses, from project-based to industry-wide analyses. Based on the two aspects of products delivered and the productive knowledge required to produce them, a link between CE and management theories of production can be drawn.
On the other hand, CM seems to be about resource allocation and delivery of a product (i.e. project), apparently a very economic-orientated set of activities. Although a wide range of management tools and methods are used in the course of a project over the conception-to-handover cycle, the emphasis is actually on the way that the production process is managed. Thus the central role is given to schedules and risk management. Further, the generic nature of project management supports this view. There is some specific knowledge in CM required for delivering construction projects, but the broader set of project management skills are not industry specific and are very much about getting the various processes needed for a particular project right.
Also, many of the important decisions in CM are often about the technology to be used: what type and how many hoists and cranes, and on-site versus offsite fabrication for example. The substitutability of capital (how much equipment) and labour (how many workers on-site) is apparent on every construction site. The treatment of production technology in construction seems rather ad hoc, and a theoretical framework backed up by modelling of processes could significantly improve productivity and efficiency. Economic theory gives technology the key role in determining efficiency, with management of the production process determining the level of efficiency. Thus a link between CM and
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the economic theory of production is found. These are both process-based and concerned with production technology choices. To confound this neat, if unanticipated, linking of CE to management theory and CM to economic theory is the position of lean construction. Lean is all about management, as Womack et al. (1990) keep reminding us, and is the manufacturing philosophy of the age (see Fujimoto 2000 and Theory and construction economics 9 Florida and Kenney 2000 for the extent of this). While the underlying vision of lean construction is an industrialized process of delivering construction projects, the focus is on managing processes. This is particularly true of the Last Planner and the activity definition model but also applies to the overall Lean Project Delivery System in general (Koskela et al. 2002). Following the argument above, a process-based approach is closer to the economic theory of production (a view that the key points made in Koskela’s chapter here rather support). In fact, with the roots of lean construction in CM this result fits nicely with the preceding argument. This is not the obvious form of linkage between the theories of production discussed above and CE and CM. What it strongly indicates is the gap between theory, research and practice in CE. The activities referred to above all fall into the parts of CE that relate to building economics and the construction industry economics of sustainability. Where are the topics and issues that underpin theory and research?
CONCLUSION
The proposition that building economics is a still-emerging field does not appear to be controversial. From the debate over the future of CE five distinct paths were identified:
1 Building economics, or construction project economics
2 Construction economics, or construction industry economics
3 Facility sustainability, or environmental economics applied to buildings 4 Theories of industrial organization applied to building and construction 5 New macroeconomic theories applied to the building and construction.
Clearly CE has not, to date, developed a theoretical base that would allow a claim for it as a discipline or body of knowledge in its own right, and Ive and Chang were not optimistic about the ability of CE to generate the sort of theoretical development that would give it the status as a recognizable sub-discipline within economics. However, CE is not a theory-free zone. Many of the papers published in the field are explicitly or implicitly based on a theoretical proposition of some sort, usually imported from another discipline such as economics, finance, management or organizational theory. Often the theory is not elaborated at length or in detail. Generally, theory is not the focus of the research, and the
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paper for publication is typically about the application, because construction journals tend to emphasize research results rather than theory.
Production theory is one area that could be relevant to CE and CM because the delivery of a new building or construction project is clearly about producing something. However, production theory is complex. The economic theory of production developed out of the classical concern with marginal productivities into a production function focused on substitutability of factors under 10 Gerard de valence a technological constraint. CM could be reinterpreted in these terms because of the emphasis on construction technology, but it would need to explicitly consider the labour–capital trade-offs available in the choice of production methods. A relationship between CM and the economic theory of production was suggested because both are process-based and concerned with technology choices.
For CE the evidence does not support a strong link to economic production theory. On the other hand, the link to management theories appears to offer opportunities for extension and development of the skill and knowledge base. The management and application of productive knowledge could be taken as a core capability of CE because of the strong technical base and analytical nature of many of the tasks covered by CE. Further, putting this productive knowledge into the context of distributed knowledge also makes sense for CE, because of the diverse range of tasks and skills that CE incorporates. It was argued that many CE tasks deliver products associated with different stages of a project, many of course associated with budgets and cost planning.
There is not the apparent emphasis on managing processes that was found in CM. Combined with the productive knowledge required for CE products, a relationship between CE and management theories of production was suggested. Perhaps surprisingly, it turns out that production theory may be useful in conceptualizing CE and CM, at least as academic disciplines. While this may be regarded as irrelevant scholasticism by today’s industry practitioners, much of what they do is based on the work of research and theory developed decades ago by our predecessors. Likewise, we should aspire to influence what will be taken for granted as industry practice in the decades to come.
Therefore there is a need for these theoretical bases to be more fully developed and elaborated for CE to become recognized as a discipline. Indeed, a debate over what theoretical bases are available, where they could be used, and the appropriate methodology would be useful in its own right. Perhaps more important, though, would be an ongoing debate about the characteristics of the industry, projects and participants from a theoretical perspective rather than an ongoing ‘accumulation of facts’ from case studies and surveys. In this respect the approach taken to industry studies by researchers in the economic field of indus-
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trial organization is relevant, because the field uses empirical research into firms, products and markets to inform and develop their theories.
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2. Developing construction economics as industry economics
Jan Bröchner
INTRODUCTION
Work by many construction economists has been directed towards cost and time prediction in construction projects, along with macroeconomic applications. While part of this orientation can be explained by linkages to the teaching of estimating and scheduling, the question is posed whether construction economics can be instrumental in reforming construction. The development of information and telecommunications technologies as well as deregulation in many countries are identified as two forces of change that jointly explain recent vertical disintegration and horizontal integration in construction-related industries. In addition, theories of industry economics have changed and developed new approaches to information, institutions and incentives.
Three topics for construction economics are outlined against this background. These are integration and innovation, signalling in real-estate markets and finally, developing public procurement. Concluding remarks broaden the discussion of knowledge and incentives to include global aspects of the future development of construction economics, in particular the links between the economics of construction and of constructed facilities.
THE SCOPE OF CONSTRUCTION ECONOMICS
For many years, progress made by construction economists has meant an increasing sophistication in analyzing and predicting cost and time of projects or
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